The Deal: Community Health Expects FTC Okay

NEW YORK (TheStreet) Community Health Systems (CYH) said on its earnings call Thursday it expects to close the $7.6 billion merger with Health Management Associates (HMA) following the antitrust review by the Federal Trade Commission during the first quarter 2014. The FTC issued a second request for the hospital deal on Sept. 30.

The Securities and Exchange Commission has notified Community Health that it will not review the proxy for the merger. But Community Health noted that the S-4 will have to be updated following receipt of a new fairness opinion for the Health Management board, which is due Feb. 19. The revised opinion follows a change of the target's board after a proxy contest to replace directors. So a shareholder vote is unlikely before mid-March.

Community Health also said on the call that it was in the midst of a settlement with the U.S. government regarding an alleged billing and kickback scheme. Community said it expects to close the merger by the end of the first quarter 2014.

The deal spread Thursday was about 65 cents, or 5% and 13% on an annualized basis if the merger closes mid March. Health Management shareholders could receive up to $1 per share more based on the outcome of litigation with the U.S. government.

Community Health said each FTC investigation of hospital combinations is unique and so extrapolating from prior reviews was not telling of an outcome. The Health Management deal is thought to present overlaps in Florida, Pennsylvania and Texas. The merger agreement allows that Community Health need not divest assets that might be considered a material loss to the combined companies.

The merger agreement is relatively loose regarding divestiture requirements to get the deal past the FTC. Community Health need not divest assets that might be considered a material loss to the combined companies. Some divestitures are expected, but not to the extent that the parties would rather endure an antitrust challenge in court than comply with the FTC's likely conditions.

The deal was announced July 30 and Health Management's largest shareholder, Glenview Capital Management LP, with a 15% stake and a 9.5% share of the buyer Community Health, succeeded with a consent solicitation in August that replaced the board of Health Management.